Air Date: 03.23.2021
Charles Carillo was introduced to real estate by his dad at a young age, and although it didn’t immediately appeal to him, since finding his feet in the industry in 2006, he has never looked back. He shares the story of how he took his very first property from 0% occupancy to 100% occupancy in 90 days. Although the work Charles did on that property is still his proudest moment, he has come a long way since then, and as managing partner of Harborside Partners, he is now in charge of numerous properties. Charles explains why having more properties in your portfolio is far safer than having less, offers advice for making the property management process as seamless as possible, and gives examples of metrics that he uses to determine how his sales are doing. We also delve into the reasons that Charles prefers to work with investors who have worked through part downturns, the importance of setting goals, the elements that give you a competitive advantage in the real estate sector, and more. Remember, you aren’t going to be hitting home runs all the time with real estate investing, but when you do it will be worth the wait!
Key Points From This Episode:
- The introduction to real estate Charles received from his dad, and why it didn’t appeal to him at first.
- Why Charles will only buy in certain asset classes.
- How Charles’s company has grown from 2006 to the present.
- The factors which motivated Charles to enter the real estate industry and how his approach differed from his dad’s.
- Benefits of scaling up and owning lots of units.
- Advice for making property management as easy as possible, whether you are doing it yourself or using a company.
- Ways you can still keep a level of control of your properties if you are using a management company.
- Team members and VAs which are vital parts of Charles’s business.
- Where Charles does his marketing for his properties.
- Examples of metrics that Charle’s uses to determine how his sales are doing.
- The elements which give you a competitive advantage: capital, relationships, and more units.
- Why Charles likes working with investors who have gone through downturns in the past.
- Charles shares why the first property he bought was the proudest moment in his career, and probably the craziest.
- Real estate investing isn’t all about the home runs.
- Charles’s top two book recommendations.
- Why setting short term and long-term goals has been so helpful to Charles.
- How you can get in touch with Chales if you want any advice on setting your own goals!
“If you’re a little bit more of a spread-out investor, and you’re in bigger deals or more units, whether you own 100% of them or whether you own a 10th of a percent of those units, your cash flow will be much more consistent.” — Charles Carillo [0:10:05]
“Diversification is key when you’re building your portfolio.” — Charles Carillo [0:12:05]
“If you have access to capital, and you have a long-term relationship, that’s where you’re going to have advantage over other buyers.” — Charles Carillo [0:26:23]
“Not every property is going to be homerun, but you will hit them.” — Charles Carillo [0:34:16]
“It’s amazing the amount of progress you can make by consistently doing a little bit every day in the same direction.” — Charles Carillo [0:36:08]
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—Full Transcript Below—
“CC: Either you’re going to have, somebody on the team would be kind of what we’ll say like boots on the ground. Not that they’re there every day or every week, but usually, once a month they’re going to be there reviewing the property at different times. If maybe they’re meeting with general contractors, they’ll be there more often. But after property has been stabilized, let’s say, renovations have been done, they’re going to be checking in and seeing how the management company is managing the property.”
[00:00:25] KR: Welcome to Ritter on Real Estate, the show about how to passively invest like a pro. On each episode, I interview real estate experts who give their top investing advice, strategies and tools, and I break down the insights and the practical steps to avoid the pitfalls and make better investments. I want to help you passively invest like a pro. This is Ritter on Real Estate, and I’m your host, Kent Ritter.
[00:00:48] KR: Hello, fellow investors. Welcome to Ritter on Real Estate, where we teach you how to passively invest like a pro. Today, my guest is Charles Carillo. Charles is managing partner at Harborside Partners, a real estate syndication firm and has been actively investing in multifamily real estate since 2006. Charles also hosts the Global Investors Podcast, where he interviews professionals about investing in US real estate. Charles, thanks for being on the show today.
[00:01:14] CC: Thanks for having me, Kent. It’s great to be here.
[00:01:15] KR: Yeah, awesome. I can’t wait to dig into some of these points. To start off, help our listeners know a little bit more about you. You can tell us about your background, what brought you into real estate investing.
[00:01:28] CC: I grew up in real estate investing, originally from Connecticut. I moved onto Florida in 2012. My father had been a multifamily investor since the ’80s. Multifamily, mixed use. Not really too many 100% commercial buildings, but mixed use was another thing that he was into and mixed use is really just — if you’re in a city center and you have some commercial, whether it’s office or retail on the first floor and then you have residential on top. I would say, 75% to 90% of the building square footage wise is probably residential, then you have a small little commercial print in the bottom there. That’s kind of what he was interested in and what he was doing.
I didn’t really like it getting into it, like with him and not like I was involved with it when I was in elementary school. But it was something that he brought me, it would be like twice a week and we’d go and do property management. He self-managed them, he had a team and it was like 100 plus units. He had one partner and that was about it, for some of the properties and some of them, he owned 100% out, no syndication. It was just kind of going around, talking with superintendents, talking to contractors, running up the stairs to get rent, running down to his car, to his work van to get receipts and run them back up. Then three floors down, three floors up, all of that kind of stuff. The properties that he was in the majority unit wise was, I would say like D, C- kind of stuff.
As somebody coming from the suburbs, it’s not a sexy thing that you want to get involved with when you’re younger. It’s not kind of what your plans are. But when I got out of college and my dad was really pushing me to buy my first property, he just made sure that we were buying in better areas, and he started buying in better areas as he kind of — became more seasoned in the industry. But when we went in, we didn’t buy anything, I don’t buy anything now that’s less than C+ or maybe if it’s C, if it’s gentrification. But it’s something that I’ll never go below that. Whenever I hear somebody go, “No, C-,” especially in their first couple of properties, because there are some successful landlords that can manage C- and below. It’s not something that, it’s a very — it’s a whole different management. You can manage a C+ and you can manage a B property and they’re pretty similar, right? But when you’re going down to D, it’s a completely different demographic than a C+ property, like hands-off completely different.
When I started buying property in 2006 it was multifamily, and then when I first bought my first, it was a mixed-use commercial property, which I still own both of those today, and then I started buying some smaller multifamily throughout that time as well. I self-managed for six years. In 2012, moved to Florida. I had to get professional management, which is something I never did before, or my dad ever did before. But I found a great property manager through a contact I had from actually the first property we bought. The seller gave me an awesome — you keep in contact and it’s also about networking and relationships. I’ve had that management company for nine years. I’ve been blessed. They are a great company, and I handle my kind of remote asset management from there. During COVID, I haven’t been able to be up there, so I haven’t actually seen the properties in like two years. But I usually would go up probably twice a year to check on the small little portfolio. Now, we syndicate properties mainly through Florida and the whole Southeast.
[00:04:36] KR: Got you. That sounds like an awesome experience and maybe not in the moment, being a little kid and being dragged around to the properties. But I think just being able to grow up in that environment and understand the power of real estate, right, and the way it was able to generate wealth for your family and see that first hand and get that experience. It sounds like great exposure. How did that really influence your perspective on investing?
[00:05:04] CC: It went to show because I always ask my dad, I really got — I wasn’t really into real estate and for better or worse, I read after seventh grade, that summer before eighth grade, I read The Art of the Deal by Donald Trump and I was like, “All right. This is exactly what I want to do,” and maybe this is maybe like in the late ’90s. I was like, “Aw! This is the best thing ever.” I asked my dad, “Why don’t you have it managed? Why don’t you get third-party management? Why don’t you do it like for growing?” My dad is like, “This that,” and he has all different reasons for what worked for him. He was more of a mom-and-pop operator as we would say today. It was just, he had a system that worked and he had superintendents that worked.
I think that to get into the next level when I was doing it, because I was continuing on that path when I started and I was like, I had an online business that my brother runs now full time. We’re like, “Okay. Make money, we’ll invest in real estate. Make money, invest in a real estate.” Then it was like, “Okay, I think the only way of really growing this is to get into syndication.” We would invest passively to kind of see how it was, and then actively started doing deals. I still passively invest now. I mean, the majority of what we’re investing into is deals that we’re general partner and active investing on. It’s a whole different mindset, because real estate, really no matter where you get involved with it, if you’re on the active side, whether you have a property management company or not, it’s not really 100% passive. The only way of it really being 100% passive I have found is, when you’re going through and doing REITs and stuff like that or going through the syndication passive model, which is one of my favorites.
I always tell people, you know, if I really didn’t love real estate, I would just do the passive side of it and never even get into the active because it’s so nice when you’re just getting money that hits your account every month or every quarter, and you can go back, you’re building wealth there and then you can get back to running your business and doing what your real profession is.
[00:06:55] KR: Yeah, absolutely. It sounded like you didn’t necessarily grow up loving real estate, but you developed a passion for it over time. What was that trigger point where you said, and maybe it was the book by Donald Trump, where you really said like, “Okay. This is where I want to direct for the rest of my career”?
[00:07:17] CC: Well, it was interesting because I was — I remember watching an old Yankees game with my dad, and they were talking about one of the players, I forget who it was, back in the ’90s, that bought an apartment in New York. I was like, “Why is this guy living in an apartment?” You know what I mean? My dad was like, “Well, you know, those apartments are a lot different than the ones that we go and visit and stuff like that.” You realize there’s a whole different class of real estate rental that is — I didn’t grow up in a neighborhood where people really rented homes. It’s not a normal thing. You didn’t know that there was nicer real estate out there, and you didn’t really know exactly what’s the best way of doing it.
My dad kind of was like, “We should look for different properties.” Because I would bring properties to him when I was buying my first property and he’s like, “No.” Like, “No. You don’t want that area. It’s terrible. It’s not terrible, but it’s not what you want. You want a quieter street; you want this.” And all these different things. I was like, “Dad, the prices are just going up and going up.” It was just like, I bought the first one and it was fine. The second one I bought was a much better property, and it’s the best asset I own personally. The thing never — it’s just like prince money.
The thing though is that, you buy in a better area, buy a better asset. That’s what I learned over time, and not saying that you have to go and buy A class assets. I’m not really an A class asset investor. I feel like nicer workforce housing, C+, B- and I feel that opening my eyes, I think that the Trump book had nothing — I mean, there was some stuff in there about when he and his dad bought like thousand plus unit apartments and complexes out in the Midwest and stuff that you never really heard about because it didn’t have Trump on it. How that was done, his was done much more from a development standpoint, but it was a much sexier thing than what my dad was doing. I think that kind of drew me in, but then came back to home, realizing that multifamily and other commercial assets are very, very, — they’re very consistent. The more units you own — I was talking to an investor years ago, and he’s just like, “You just need more units.” I was talking to him and he was like, “I mean, someone pays, someone doesn’t pay,” all this kinds of stuff. He’s like, “You just need more units.”
It’s the same thing with any business. You have an insurance agency and commissions go up and down, you just need more clients. Like Mark Cuban says, “Sales cure all.” That’s the same thing, it’s just to get more units under your belt. If you’re syndicating and maybe you invested into one syndication, 100 units and it wasn’t doing well. Well, make your plan out to invest into several hundred more units, right? Because now, the volatility has been dramatically reduced, because now, you have so many other units. Because overall, you’re going to have and during COVID, I mean with all of our C class and B stuff, we had over 95% of people paying rent. If you had one bad building with all your eggs in one basket, you might have had a different story with mom-and-pop people now, that maybe have one asset they live off of. But if you’re a little bit more of a spread-out investor, and you’re in bigger deals or more units, whether you own 100% of them or whether you own a 10th of a percent of those units, your cash flow will be much more consistent. That’s why I invest into, when I’m doing my numbers, it’s cash and cash returns, the number one thing I look for.
[00:10:25] KR: Yeah, great, a couple things you mentioned that I wanted to call out. One is, it sounded like you were able to — it sounds like your dad really instilled the fundamentals in you. He’s talking about, “You got to pick the right locations, you got to pick the right asset classes. Don’t be too quick just to do a deal. Find the right place.” That’s so important. But you were also able to, you had kind of bigger ambitions it sounded like, than kind of running a mom-and-pop like you said. You were exposed to kind of where this could take you and the growth that you can have, so you wanted to take a different trajectory there.
Then you mentioned something else around the idea of just like unit diversification. I think that’s one of the big benefits of multifamily in general versus single family. I get a lot of questions around, from people that are considering, “Should I do single-family or multifamily?” That’s one of the things that I think you hit on is, like you said, if you have more units, then you’ve got that diversification. It helps smooth out the ups and downs, right? Where if you have like one single family rental, and it’s empty, then nobody is paying the mortgage. You’re stuck with that mortgage. If you have more units and you can handle the ups and down, then you have that safety net, you have that coverage. Multifamily really delivers that right away in an individual property. But then, also, as you scale up to additional properties, you continue to diversify and expand that net.
[00:12:03] CC: Right, exactly. Diversification is key when you’re building your portfolio.
[00:12:10] KR: Yes. Something that you mentioned that was pretty unique is, you’ve got a portfolio in Connecticut, you’ve got properties in Florida. Now, you’re living in Florida. I think you mentioned you have properties somewhere else as well. How are you managing all these properties remotely?
[00:12:31] CC: With my properties in Connecticut, those are all 100% owned. I don’t have any syndication properties up there. I have a really good property management company up there. When I’m remotely — if you want to go the active route and you have a small portfolio, whether that’s a 20-unit building or you have seven three families, whatever it is. Be a little strategic when you’re buying it, try to buy in closer. It’s going to make your management much easier. I can walk a half mile between all my properties in Connecticut. I strategically bought them in one section of a city and it makes it much easier with doing management when I used to do it myself and now, when my manager does it, whether they’re going to do snow removal or whatever it is, they can go back between properties within minutes. That’s one thing which makes it a lot easier. You’re not being spread out with smaller properties.
It’s one thing if you have a hundred-unit here, and an hour away, you have a hundred-unit, you’re not even going to be dealing with management. You’re going to have on site there. It’s completely different things. That’s one thing where a lot of syndicators go into a market and they can buy a hundred-unit property, and they already have scale because they can have two onsite people there, and maybe a part time person to handle a lot of the maintenance requests and leasing.
What I did when I was working with a property manager, now I’ve got like a system, in that first year or two, I was really figuring out working with a property manager and how it was going to work. You start them off and you’re like, “Hey! Anything over,” whatever it was, a few hundred dollars, “Give me a call. Let me know what it is.” Now, it’s probably like a thousand dollars or 1,200. I know when I get a call from the owner of the property management company, I know it’s going to cost me money. But I’ll get emails, and I’ll get reports that come in. I have access to all the bank accounts I’m a signer on. Always be a signer on bank accounts with your property management company. I can log in and I can see when rents are being deposited. Not that I know exactly the rents amounts off the top of my head, but I can log in and see that, “That looks like five out of five I deposited there. It looks like six over here.”
When you’re doing that, that makes it much easier for you, kind of have an idea of what’s going on, right? Then there’s not that much contact I need with them in that scenario. When we’re doing larger projects now, we’re going to — somebody on the team will be kind of like boots on the ground. Not that they’re there every day or every week, but usually once a month, they’re going to be there reviewing the property at different times. If maybe they’re meeting with general contractors, they’ll be there more often. But after a property’s been stabilized, let’s say, renovations have been done, they’re going to be checking in and seeing how the management company is managing the property. How do the hallways look, how does the yard look? Then we’re going to be getting into any units that are turning at that point.
The other thing too, is that I have my property manager in Connecticut. They’ll let me know every time something is vacating, before it’s vacating. Then they’ll also let me know when it’s ready to rent. That’s just a way that I can keep kind of a little bit more control over how long it’s taking. If they say it’s a minor turn, and it’s taking three weeks, well, there’s an issue there. Like, that has to be taken care of. If they say it’s a major turn and it’s been done in three weeks, okay, fine, that’s the nature of the business, that has to happen at some point. I think that when you’re working with your property management company, your boots on the ground people there just make sure that you can have some accountability in there of how you’re going to manage.
Turnover is a huge thing, it’s the most expensive thing for a multifamily owner. We take care of the advertising on the unit. When something comes up, they’ll tell me, “Hey! This is vacated. It should be ready in 10 days. This is the amount it’s going to rent for.” I tell my VA to start posting it, and they’ll call in or they’ll message in with their phone numbers and my VA will pass it to the property management company if they didn’t call in directly to them. That gives you a little bit more accountability. You know when it’s been rented, you know when it’s vacated, I like that. That’s just one thing there. Then also, having someone, boots on the ground there too so I can have someone drive by the properties. Looking from the outside of a property, especially with the snow, maybe it’s a little bit more difficult, but through other seasons of the year, you can kind of see how it’s being managed. You see if there’s trash outside. You see trash cans or anything that’s been moved back. You see if people have stuff outside their apartments and it’s not looking clean. These are things that the PM should be taking care of and making sure and enforcing. This is stuff that you can do just by a quick drive by or having someone in the area look at your property and you maybe pay him a set fee for that.
There’s a number of different ways of doing it, but I feel that just every person has their own, how comfortable they are with their property manager. It’s not going to be the same as you doing it yourself, so you just have to realize that. That was the first couple of years, I was like, “It’s not being managed the correct way,” and I think it took a couple of years really for me to get in tune with my property manager up there. Then where we really were on the same page, where I would go up there without even any kind of introduction or letting him know that I was going to be there. I’d be like, again, I have my unit keys, I’d go into some of the hallways. I’m like, “This is clean. This is fine. Everything is clean. Everything is rented out. Like this is how it’s supposed to be in some of these properties.” When I’m going in, I go in the basement. There’s nothing leaking, there’s not people’s trash.
All these types of things that a lot of property managers that aren’t on the ball are going to — you’re going to go in the basement and it looks like someone moved in down there, right, with all the stuff they brought. Your property manager has to be more hands-on to avoid that. I don’t want to find out that, I go in the basement and stuff is leaking. Every hot water is leaking and all this type of stuff. This should be stuff that when they walk that basement, and they do their own inspection, whether it’s every month, they see this and they go, “Hey, Charles. This has to be done. This should be done now, and this is going to be done. Like your roof has got less than 24 months on it,” and stuff like that.
Then those larger capex items, I will work and we do the same thing when we do syndications. We’ll go out to general contractors, find them ourselves to take care of those, or the subcontractors, to take care of those projects. We might get contacts from our property manager, but we’re going to be the ones that are going to make the final decision. That’s kind of how a capex, that’s how it has to be. On turns, I don’t really want to be getting — because it would just be an ongoing job for that. You don’t want to be finding a general contractor for every unit turn that’s just cleaning and painting. That should be in-house handymen from your property management company or from your on site. If that answers your question.
[00:19:01] KR: Yeah. I think you covered a lot of different things there. Definitely answers the question. It sounds like you are — you’ve built a system of whether it’s partners or kind of a team that’s in place to help you. Whether it’s boots on the ground, it’s folks driving by, keeping an eye on the property. You mentioned a VA. You’ve got to have these different elements that you’ve put into place to be able to manage this portfolio that is spread out in different geographies. I mean, it sounds like there’s a great system there. Can you tell me a little bit more about that team that you’ve put into place, and how that team allows you to keep tabs on these properties from a far?
[00:19:43] CC: When we’re partnering with other groups, so if — normally, we have three different strategic partners that we work with in different parts of the country. We have one that we work within Florida and Georgia. We have another one that we work with in the Midwest, in the Midsouth. With these groups, they have their own people in the ground. If it’s something in Florida, we’ll have someone from our group that will be the boots on the ground, the person checking it. I like how we set it up. You’ll have someone that’s going to be the point of contact for your group with the property manager, and they could be anywhere. I mean, they could be anywhere literally in the US, because they’re not going to be probably the one going to the property as much.
Then you’re going to have people, one person at least, that’s going to be the boots on the ground kind of person. They’re going to be the ones that, during a project management, when you’re doing your capex, when you’re doing your renovations, they’re going to be the ones that are meeting with general contractors. They’re going to be the ones that are reviewing the property. They’re going to be the ones that are giving updates to the team and saying, “This is coming along and this is something that’s behind.” It’s really those two key people once the property has been taken over by your group, of what you really need to have. I don’t like to have too many people calling the property management company because then it just, it confuses them with who they’re supposed to reach out to when there’s an issue.
They can send out reports to anyone, that doesn’t really matter. But when you’re talking and you’re having that call, usually weekly with them with larger projects and you want to know, “Could this unit get served? Is this eviction done? Do we have possession of that unit again?” You don’t want them to be repeating that to three different people. It’s really having that roles upfront makes it very important.
That’s kind of the first question I have when someone will bring us a property. “What do you need help with? Like, where would our role be on?” Because sometimes, there’d be a number of boxes that they need checked off. Sometimes, it will only be a few boxes, right? “Hey! We just need some to assist with inspections. We need someone to handle some of the property management calls, and some of the reports for investors, and raising money, and signing on a debt or whatever.” Sometimes it’s more than that, “Hey, we need someone from your group to, would you be able to, it’s down in your neck of the woods, can we utilize your property management company there? And you can work with them directly, and then also, if you have someone, boots on the ground.” It just all depends and that’s what — it’s all partnering about when you’re getting into these larger projects.
[00:22:16] KR: Got you. Okay. It sounds like you’ve really leveraged a series of partnerships to grow your portfolio and be able to expand in different geographies. And you kind of have, behind that, your own team which sounds like it includes your VA, which helps you keep tabs on things and does things like marketing. Is that right?
[00:22:33] CC: Yeah. I have a couple different VAs. I have one that takes care of a lot of admin stuff. That’s where that comes in. They’re posting different apartments for us. Usually when we’re getting to the larger syndications, it’s usually the property management company that’s handling a lot of that marking. I kind of keep an eye on that, to see exactly how much traffic we’re getting for potential renters coming in, then you can kind of tweak that. That way, you kind of know what the issue is if you’re having issues renting. Is it just because the size of the units, or the unit mix, whatever it might be? Or is it because you’re not getting enough traffic or eyes on the property?
Then that’s something that we can fix. We can turn up the marketing on it. We can pay money to have that done. Some properties have so much people that walk into it we don’t even have to deal with that. We have one property where we have more people that walk into the property than we have units on it every month. It’s like, just certain areas just have lots of traffic, depending on where it’s located. That’s the least of our worries, is getting people there. What we need though is that, we need to have the units turn fast. When people are on a waiting list, we can actually serve those people by renting to them.
[00:23:44] KR: Got you. You mentioned watching some metrics and knowing when to turn up the dial from a marketing standpoint. What are the benchmarks that you’re looking at? What are you expecting to see for a unit that you have listed, and what tells you that it’s time to turn up the dial?
[00:24:01] CC: Well, you’ll talk to your management. Sometimes they’ll be like, especially when you’re in C class, “Hey! We’re getting a lot of people coming in. We’re getting a lot of applications, it’s just not qualified.” Okay, st that point, that’s probably a lot of walk-in traffic, so what we’re going to do there is, there’s a lot of different online services that will put them all on like Zillow and Apartments.com and all that stuff. You can really cover a number of different platforms. I forget the name of the service, it does like 20 different apartments.com type websites. You can do it there.
We will post as well on Craigslist. Most of the time for my own properties, posting on Craigslist will get them rented. If something hasn’t rented or we don’t have it rented within like a week or two, we’ll put it on Zillow. I mean, it will go real quick at that point. Sometimes we’ll just do it both at the same time. It just depends on certain unit sizes that rent faster than others, depending on the market you’re in.
Like where we are in Tampa, two bedrooms go off the shelf. We have 100% occupancy on two-bedroom units, right? One-bedroom is a little difficult. That’s something where we’re going to put that out and that’s going to be where we’re going to — it’s going to take more marketing, kind of know how to get those people into those apartments and turn down from say, maybe two weeks after you’ve finished it, rent in it, to maybe — we’ll be happy if we can get it rented within three weeks, or four weeks to someone that’s a very qualified person. Just having those metrics in line, in check, sometimes it goes faster, it really depends on how you’re kind of together with it. When you’re getting more units, you don’t really have to turn off the marketing, which is great. On smaller properties, when you have unique units, you have to keep on turning on and turning off.
But when we’re doing syndications, we can now say, “Yeah, we have,” so we have 170, 180 units in Tampa and we can say, “Well, we don’t have anything here, but three blocks away, we have another property. It’s going to be similar rents. Blah, blah, blah.” So now, you have that competitive advantage, where other operators there aren’t able to fill their units from another property. They only have their property that they’re able to fill units from. Having more units in the area too is something that helps out, and really ups that competitive advantage, which really, when you’re buying real estate, it’s relationships and money. If you have access to capital, and you have a long-term relationship, that’s where you’re going to have advantage over other buyers. But when you’re on the rental managing side of it, you have that competitive advantage when you have more units, right? Scale of economy so you can get your cost down, but also, you’re able to keep your vacancies at a lower amount because you have much more sources for getting renters in and then moving them.
If somebody wants to go from a one to a two-bedroom, instead of them getting back on Zillow, now you’re like, “Hey, we don’t have any here, but we have one here.” Right off the bat, you’ve minimized the leasing fees, you’ve minimized all these different fees that you might have to pay if you had to kind of obtain that client again, and you already know that that tenant is a good tenant. It minimizes risk across the whole board.
[00:27:13] KR: Yeah. It sounds like your marketing, well, general strategy is you’re acquiring properties, several properties in a single location, and then you’re able to cross market or cross referral and in that way, keep your property and keep all your properties full, so very good strategy. As you look at Harborside and your strategy that you guys are executing, what is it that differentiates you from the host of other syndicators?
[00:27:39] CC: I think that it’s the experience. I mean, I’ve been investing in multifamily since I was six, like we’re talking about. A lot of the operators that we’ll work with, they’ll have some of their seasoned people on their teams that have been investing for 20+ years. You have a lot more experience and I feel that when you’re partnering with other operators, I really want to see people that are making decisions in our partner companies that have gone through the downturn, ’08. Obviously, we all went through COVID and are going through it still, but it’s something that — when you’re going through a pullback like that, if you’re going through multiple pullbacks, you kind of have an idea of what to expect, and obviously everyone is different, right? You can’t compare ’08 to the early ’90s to COVID, right? But it’s something that you’ve understood an area where, a time when you’re not raising rents and you’re not sticking to your business plan like you wanted to, right? Raising rent so soon and doing all this work to the property.
You’ve got to really manage, figure out a way of increasing your net operating income on current assets and new assets, by not raising rent. It’s like the old adage when you’re selling your house. You talk to your real estate agent, “Hey, what else do you have up your sleeve other than lowering the price of my property to sell it? What else do you have up your sleeve to increase NOI other than just raising rents?” Because raising rents doesn’t work in every market, as we saw last year in COVID. I guarantee most operators out there, if they’re being honest, didn’t raise the rents as much as they wanted to. They didn’t do the capex work that they really wanted to complete during that year. The safe thing to do is put that on pause and do rent increases as the market will bear. But the thing though is that — what else were you doing? What inefficiencies were you taking care of?
When we were buying a property, we bought a property and our last property was a 90-unit and it was in Tampa, a 68 and a 22, and we put together in one syndication about two blocks from each other. The 68 was a much more stabilized property. The 22, it was mom-and-pop and it was, we’ve now painted them and they’re now like part of the whole asset that we have in the area. But the thing that was that, they’re paying a 15% management fee. We bought this during summer of COVID really, end of summer of COVID. With that being said, we can pull that in, it’s just over 3% with our property manager in Tampa.
With that being said, without us doing anything, we now have lowered management by 80%. That’s a way of adding value to a property without going in there, like every renter thinks what you’re going to do is raise the rent 100 bucks without doing anything. That’s kind of what separates, I think, seasoned operators maybe less I guess, I don’t want to say newbie, but newer investors, newer operators that might not know how to handle a downturn. Because it’s easy to make money when the market is going up, right?
[00:30:29] KR: Sure. Yeah. You’re saying, really understanding and experience, but I think what you’re saying is really what that means is an understanding of what all the levers are, and which levers you can pull to have multiple ways to add value, not just rent, but focusing on economies of scale and expenses, right? Which you mentioned from the management fee example.
[00:30:50] CC: Right. Exactly.
[00:30:51] KR: Very good. I’d like to go to the Keys to Success section. We’ve got a few questions I want to ask you, Charles. First one is, what’s the one question that every investor should be asking their sponsor?
[00:31:04] CC: What is your experience with this asset class and this market? I think that’d be the main thing that I would ask and see what the response is, and make sure that it suffices.
[00:31:15] KR: What type of response would you be hoping to hear?
[00:31:19] CC: I would want to see that they’ve had experience, obviously in the asset class and in that market, and I want to make sure they are property manager, because they’re the ones that are really pulling levers like you say, they’re the ones that are really running the property. You might have a $10 million asset, but let’s be honest, the person that’s actually seeing your tenants every morning is making $40,000 or $50,000 a year. How are they finding that person, that key person to keeping someone from 12 months to 24 months, or from 18 months to 36 months and minimizing your turnover?
That’s kind of what I want to see, what’s the property management’s kind of experience as well in the market with doing what your business plan is? If your business plan is already a stabilized property and we’re just holding onto it, great, like whatever assets have you done? Or have you done these major 5,000+ unit capex projects and what are the addresses? That’s kind of the thing I want to look at as well. You’re vetting not just the sponsor and the operator, you’re vetting also the property manager.
[00:32:22] CC: Yeah, really good point. Thanks for following up on that. What are you most proud of in your career?
[00:32:27] KR: My first commercial property, I bought a completely vacant, every time I think back and it’s completely nuts, mixed-used property, so it had like small commercial downstairs and it had a bunch of apartments above, and I still own it. But I bought it 0% occupancy, it was during the end of ’09 and that was when, I think this thing was sitting in the market, I actually found it through a residential broker, and the thing was like — I was like on the market for like five months. I put in like an offer of like 30% less and they like countered. I think countered for like 2% higher than what my offer was, and I bought it. I refinanced it out after getting it fully occupied in like 90 days and doing a major renovation. I didn’t even know what value add was at the time, I was just turning around a property. I didn’t know they had all these. I didn’t know house hacking was a thing too, and I was already doing that.
When I did that, I was like, I could take in a lot bigger projects because that was a lot of risk and no investor money. It was 100% my money. I paid cash for it and did all the renovations in cash. That’s what I would say of my most shining moment so far.
[00:33:29] KR: Ton of experience coming out of that one property it sounds like. Would you do that deal again?
[00:33:34] CC: Oh, yeah. I remember, I finished with it and my broker was like, “Now, you just need five more of this or four more of this.” I was like, “Exactly.” That was the beginning of 2010. That was one thing, when you’re buying property, don’t always look for a homerun. That was a homerun. That was like a grand slam. My [proud 00:33:51] man just still can’t believe when I bought it for, [inaudible 0:33:54] asked me what I paid for it and he’s looking. He like, “Oh my God! You stole that.”
I stopped like buying, looking at properties like around 2011, 2012. I was like, “It’s way overpriced,” because you’re so used to buying in 2008, 2009, 2010 and then you’re like — it’s fine to do doubles, and triples, and singles, right? Always be looking for properties. I think that if you’re active, that’s the thing that you have to do. Not every property is going to be homerun, but you will hit them. Right? That’s one thing I would like to tell your listeners as well.
[00:34:22] KR: Yeah. I appreciate that, because I use that baseball analogy a lot. I tell people like, “Look, we’re not hitting homerun’s here”, because what we do, the value-add B class, right, cashflow properties. You say, “Look, we’re hitting singles and doubles, but we’re staying on base.” You keep going around the bases, you keep going around the bases and the runs add up. So yeah, I appreciate the baseball analogy. What book should everybody be reading?
[00:34:48] CC: There are two 80/20 books. There’s an 80/20, the main one and then there’s an 80/20 marketing one. I think anybody self-employed, I think the 80/20 one for anybody that’s — it doesn’t matter if you have a job, whatever you do, you should do that, read that book and it’s a quick read. If you’re flying, you can read on one flight. The 80/20 marketing is about the same size. It just breaks down if you’re in sales, where you’re spending your time. And if you’re in your business, what are the high-level activities you’re doing and which one should you get off your plate one way or another. Definitely 80/20 series.
[00:35:23] KR: Cool. Thanks for telling us. Lastly, what is your number one key to success?
[00:35:28] CC: When I started like focusing more on what my goals were and really outlining what my 5, 10 and 15-year goals are, and then kind of brought that to figuring out weekly what my goal has to be. That’s something that you can really track. It’s very difficult to see if you’re on track with a 15-year goal, but you should have them. It’s something where I can now break that down to a one-week goal, and I know, “Okay. This is what I have to do this week to move myself forward.” Usually, it’s not something major. I mean, it could be something a few hours a week, an hour a day that you time block out.
You look back in two months and you’re like, “Oh my God, I’ve really made some progress.” That’s something over the last two years I’ve done, and it’s dramatic. It’s amazing the amount of progress you can make by consistently doing a little bit every day in the same direction.
[00:36:14] KR: I think that’s so powerful that you take these big analogous goals that are out there and break those down into something very specific, and specific actions you can take daily and weekly. I think like you said, something that I do where — I’ve got three small kids, we’ve got a new dog right now, we’ve got a lot going on. I don’t have a ton of like large chunks of time, but what I can do is I can chunk out 15 minutes a day to read as much as I can in that time. Some days it’s a page, some days it’s more, but at least I’m making progress and I’m able to read books that way. Because if I waited until I had an hour or two to sit down, and like really dig in, it just wouldn’t happen. I found that even being able to just chunk out a little bit each day, even 15 minutes can make a difference.
[00:37:12] CC: Yeah, the 10-pages a day, that’s kind of a goal I try to hit. I don’t hit it every day, but you do it and you look back and you’re like, “Oh! I’m almost done with this book,” and you think 10 pages is nothing, but you can do a book a month. That’s a lot better than — most people don’t even read a book a year.
[00:37:26] KR: Right. It’s like, “Yeah. Now, I’m going to get to that book,” then it just sits there and collects dust, exactly. Awesome, Charles. Thank you for coming on the show today. Thank you for sharing your life story, and your journey, and the information. I think a lot of good content for folks today. If people want to get in touch with you and learn more, how do they reach out to you?
[00:37:44] CC: If you’re interested in passively or actively investing, I do free 30-minute strategy calls, and we can kind of talk about where you are now and where you want to go, and you can just go to schedulecharles.com. It’s schedulecharles.com and it goes to a page, right on my personal websites. You have all my other information there as well. You can just book a time and we’ll talk about your 5, 10 and 15-year goals.
[00:38:06] KR: Awesome! Very good. Well, everybody, reach out to Charles. Thanks, Charles. Have a great rest of the day, man.
[00:38:12] CC: Thanks, Kent. Thanks for having me on.
[00:38:13] KR: Bye.
[END OF INTERVIEW]
[00:38:14] KR: Thanks for listening to another great episode of Ritter on Real Estate. Hit the subscribe button and make sure you don’t miss out on the content that will make you a better investor. Also, visit kentritter.com for articles, videos, and tools curated just for passive investors. Until next time, this is Kent Ritter with Ritter on Real Estate. Now, go out and invest like a pro.